To Become No. 1, Volkswagen Needs to Succeed in Chattanooga

Regardless of what you think about the Volkswagen Group's ambition to become the world's largest automaker by 2018, several roads to the German mass-marketing machine achieving that goal are going to run through the rather improbable location of Chattanooga, Tennessee.

Since July, 2008, when Volkswagen announced that Chattanooga had outdone (and outbid) potential sites in Michigan and Alabama for the $1 billion assembly plant - VW's first U.S. production site since shuttering a Pennsylvania plant in 1988 - it's become increasingly obvious that if VW intends to shoulder past Toyota to sit atop the automotive heap, that grand plan probably isn't going to work if Chattanooga doesn't work.

Volkswagen's Chattanooga Operations LLC is the linchpin in the company's plot to triple U.S. sales to 800,000 vehicles in 2018, the year it also takes over the world. The company kicks off production in Chattanooga with a Passat-replacing 4-door sedan starting in the first quarter next year - but the real intrigue centers around what VW plans after that.

Efficiency Is Only The Beginning

During AutoObserver's late-Fall tour of the still-under-construction facility (with production still months away, company officials would not permit photos to be taken inside the plant), Volkswagen Group of America Chattanooga Operations LLC chairman and CEO Frank Fischer calmly reminds that apart from all the other exectations, Chattanooga is projected to be the most efficient assembly plant in mighty VWs global manufacturing empire - a full 20 percent better than VW's current productivity-leading plants once production is fully underway.

Chattanooga surely won't be VW's largest plant, said Fischer. Its neighbor even further south, in Puebla, Mexico, churns out more than a half-million vehicles annually. And the sprawling home plant in Wolfsburg, Germany, builds a stunning 700,000-plus new Volkswagens every year.

The Chattanooga plant will start out with a more modest capacity of 150,000 units per year on two shifts, said Fischer. Overtime work and other productivity-enhancing moves could bring the number to 250,000 in the existing building, which encompasses a body shop, a paint shop and general-assembly line and is served by a supplier park currently housing seven companies.

But that's where some of that intrigue begins: Volkswagen has alluded to building significantly more than 150,000 vehicles at the Tennessee site, and Fischer and a VW spokesman openly talk of the potential to construct a "mirror" facility adjacent to the existing plant. The mirror plant's construction is talked about as more a question of "when" rather than "if."

However VW goes about it, "We want to make sure the capacity is used," Fischer told AutoObserver. He said the current plant could be operated on three shifts to crank out as many as 250,000 vehicles annually, but he is "very much in favor of two shifts" because a three-shift production scheme reduces flexibility.

Intrigue No. 2: VW plans the Chattanooga-built Passat replacement, for now simply called "New Midsize Sedan," or NMS, to sell in greater numbers than the current Passat, which is pacing for about 13,500 sales this year. Even adding sales of the CC, the low-slung, coupe-like Passat variant, which through November reached 25,275 buyers in the U.S., Passat numbers are a far in arrears of the Chattanooga plant's 150,000-unit initial capacity.

It will be some time before Chattanooga is ramped up to full capacity, but in whatever time that takes, it is difficult to envision any U.S.-built Passat replacement tripling today's sales levels, regardless of how wonderful the still-unnamed New Midsize Sedan might be.

For now, nobody at the company is saying much about how the numbers align. But the name of the VW Group's Audi premium division has come up repeatedly in the two years since VW finalized the decision to build in Chattanooga. The company has ambitious sales goals for Audi, too, and building Audis at the U.S. site could further help VW hedge against global currency-exchange fluctuations, although executives have said there are no current plans to build Audis in the U.S.

More likely is the possibility of VW adding another model to the production mix in Chattanooga. Perhaps the next-generation CC, the Jetta or even the coming Up subcompact.Another option to take up the gap between potential U.S. sales of the NMS and Chattanooga's capacity is export - either of the NMS (although that is unlikely) or another model.

During an interview at the plant, Fischer said only that the designed-in flexibility at Chattanooga means the plant could build any vehicle based on the company's modular MQB chassis-and-components matrix that essentially covers front-engine/front-wheel-drive vehicles of the A-, B- or C-segment. Similarly, the paint shop is sized to handle a wide range of vehicle sizes.

Fischer did say, however, that although VW's modular platforms and the plant's extremely flexible tooling enable a wide range of models to potentially be built in Chattanooga, manufacturing one of the group's larger vehicles probably isn't in the cards.

A Happy Relationship

Guenther Scherelis, general manager of communications at the plant, says VW chose Chattanooga after examining 398 potential locations before narrowing the choice to the states of Michigan, Alabama and Tennessee.

Tennessee came up with a highly lucrative package of incentives said to total $577 million, reputedly a new record for a U.S. auto-assembly plant - and well in excess of what Alabama was said to have dangled. The company will pay about $4.7 million for school tax each year.

Volkswagen settled on a 1,400-acre site in Hamilton county, a dozen miles northeast of the city that once was a military munitions-storage site the county long had resisted subdividing in the hopes of landing a giant single project just such as VW's.

The Chattanooga plant will employ about 2,000 at full production - to date, the company has fielded 65,000 applications - with another 9,500 indirect employees of suppliers, which includes seven currently operating in a dedicated supplier park just north of the main assembly plant area. Directly south of the plant is a building to handle fitment of aftermarket-type components such as body kits just before the finished vehicles are loaded onto railcars for shipment; VW says 80 percent of the vehicles produced at the plant will be shipped by rail to reduce truck traffic and emissions.

Also on the site is special training academy the state put up $40 million to build, equip and support for eight years. The academy features the expected classrooms and hands-on training modules, but also incorporates unique facets such as an apprentice-training school and a full-size practice paint booth.

There's an independent health-care facility that includes a fitness center and child-car facility. It is open to the public as well as VW employees. A nature preserve VW helps sponsor occupies a large plot across from the training center along the winding access road from I-75.

Where The Cars Come From

Inside the plant, VW engineers set up what they call a "jellyfish" body-shop arrangement that differs from the "fishbone" layout typical of many auto assembly plants. Sub-assemblies flow from individual lines into the body shop, the highlight of which is two enormous robotic framing jigs to attach bodysides, which represents the body of the jellyfish, the sub-assembly lines flowing out from the body.

There are 383 advanced robots in the body shop, where the automation level is about 77 percent. There are 4,730 weld spots and 292 welding guns. Output will be about 31 cars per hour, VW said.

A chief design goal was to keep all decision-making personnel within easy communication range. The major process areas - body shop, main assembly and paint shop - are stacked and a concentric-circle layout for major checkpoints means "nobody's further than 1,000 feet away," said Fischer, so mile-long walks to another area to investigate a problem won't be necessary at this plant.

The company is particularly proud of the Chattanooga plant's paint shop, which is symbolic of the energy-efficiency and sustainability efforts central to the entire plant. The paint shop applies a new-technology, waterborne base coat that incorporates the primer, eliminating a step in the painting process and, more importantly, an entire oven-baking session, cutting carbon-dioxide emissions 20 percent - with the happy secondary benefit of cutting throughput time.

The paint shop also uses an all-new "Eco Dry-Scrubber" that eliminates the commonly used water curtains to catch paint overspray. Instead, the paint-booth air is sucked into a filter of limestone, collecting the excess paint that normally is carried by enormous amounts of water. The paint-laden limestone can be ground up and recycled. The process saves 50,000 gallons of water daily.

Volkswagen is seeking the highest level of Leadership in Energy and Environmental Design (LEED) certification available for an auto plant, said Scherelis. It is a complex and lengthy certification process, however, so the plant likely will achieve the goal in stages.

Learning From History

Meanwhile, CEO Fischer, who's served in company roles all over the world, said VW came at the Chattanooga project by trying to remember what went wrong a generation ago in Westmoreland, PA, the site of the company's last and troubled U.S. assembly plant.Almost from the start, that plant, which produced the Rabbit (later it took on the car's global name, the Golf), was beset by labor unrest and other social problems.

Tennessee is a "right-to-work" state in which union membership cannot be made a condition of employment. The state's Republican Senator, Bob Corker, last week told the Chattanooga Times Free Press he thought it would be "highly detrimental" if the United Auto Workers union, which represents most domestic automakers' hourly workers, were to organize workers at the Chattanooga plant.

Spokesman Scherelis was quoted by the paper as saying employees at Chattanooga will decide for themselves on the matter of union representation.

Although he did not specifically mention the labor unrest that had become a hallmark of VW's experience in Westmoreland from 1978-88, Fischer said, "For us, it was important to look at our history and learn from it." He said networking between Westmoreland and Volkswagen headquarters in Germany was "very bad," adding that, "if you look at Westmoreland, it was not a good experience."

Volkswagen must believe it can do things differently this time around. The sedan it will build starting next year is designed strictly for American tastes and is meant to address what VW perceives as the primary reasons for its years of volume decline in the American market: high prices and inability to adequately address the specific tastes of U.S. buyers.

To that end, Chattanooga seems to be the answer. Producing in the U.S. is certain to reduce VW's fixed and variable costs in relation to European-made models and provide a useful currency hedge (80 percent to 85 percent of the NMS built in Chattanooga will be local content).

Only after the launch of the NMS will it become evident whether the other vital component to VW's plan to triple its U.S. sales volume - designing vehicles to suit American preferences - is within the company's skill set.

Failure in that regard won't come from lack of a state-of-the-art assembly facility, though.